One primary focus in 2021 for regulated firms is planning for compliance in line with the EU’s 6th Anti-Money Laundering Directive (6AMLD), which clarifies the definition of money laundering offences and establishes minimum rules on criminal liability for money laundering. With a deadline of 3 December 2020, many Member States have begun to incorporate 6AMLD into national frameworks and financial institutions and other regulated firms are expected to implement the applicable regulatory changes by 3 June 2021.
The purpose of 6AMLD
The directive states that the Council Framework Decision that was created in 2001 was “not comprehensive enough and the current criminalisation of money laundering is not sufficiently coherent to effectively combat money laundering across the Union and results in enforcement gaps and in obstacles to cooperation between the competent authorities in the different Member States.” As a result, this directive sets out to provide clarity around two key questions:
- What is money laundering?
- Who can be charged with money laundering crimes?
An expanded definition of money laundering
6AMLD uses the broad definition of money laundering from the 4AMLD, which states:
- the conversion or transfer of property, knowing that such property is derived from criminal activity or from an act of participation in such activity, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such an activity to evade the legal consequences of that person’s action;
- the concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of, property, knowing that such property is derived from criminal activity or from an act of participation in such an activity;
- the acquisition, possession or use of property, knowing, at the time of receipt, that such property was derived from criminal activity or from an act of participation in such an activity;
- participation in, association to commit, attempts to commit and aiding, abetting, facilitating and counselling the commission of any of the actions referred to in points (a), (b) and (c).
In an effort to be more uniform across the EU, 6AMLD more specifically defines the types of criminal activities that constitute predicate offences, or crimes that are considered components of money laundering. The directive identifies the following crimes as predicate offences to money laundering:
Furthermore, the directive requires that aiding and abetting, inciting, or attempting to commit any of the offences listed above also constitutes a punishable crime.
Liable Persons and Harsher Punishments
The directive extends the criminal liability of money laundering offences to ‘legal persons’, or companies and incorporated partnerships and persons holding key positions within them. Therefore, placing more responsibility on senior management of larger firms as well as any employees that are directly involved in committing money laundering offences. Consequently, money laundering crimes are expected to be punishable by harsher penalties, including larger fines and stricter sanctions with a “maximum term of imprisonment of at least four years” for any money laundering offence.
Cooperation among Member States in criminal procedures
6AMLD also emphasises the importance of cooperation among Member States in criminal procedures, requiring them to “assist each other in the widest possible way and ensure that information is exchanged in an effective and timely manner in accordance with national law and the existing Union legal framework.” Further, Member States are encouraged to look beyond country-specific differences in the definitions of predicate offenses to ensure international collaboration to combat money laundering.
Implications for the UK
The UK left the EU on 31 January 2020, with the transition period ending on the 31 December 2020. While the UK is not directly impacted by the EU’s AML directives going forward, it is assumed that the UK will generally adopt similar provisions despite not formally incorporating 6AMLD. In fact, most UK money laundering laws, such as the Proceeds of Crime Act of 2002 (POCA) and The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), already incorporate many of the requirements of 6AMLD, such as broader predicate offences and longer minimum prison sentences.
There are some questions about the extent of which UK AML laws address corporate liability, however, the UK has already introduced similar language regarding bribery and tax evasion and is considering the same for financial crimes. While it remains to be seen whether the UK will incorporate all the requirements of the directive as a best practice in the near term, it may be more prudent for firms that operate within the UK to globally adopt the 6AML to cast a wider-reaching compliance net.
How firms can prepare
Effective regulatory change management systems start with identifying what changes are applicable to the organisation. Because every Member State of the EU (as well as the UK) will have slightly varying laws and requirements, firms will need to first distinguish which changes are relevant to them. Next, it is important to create specific action items and delegate them to specific responsible parties. Action items may include revisions to policies and procedures, training programs and/or adoption of new processes and should be assigned with specific deadlines to ensure timely and appropriate adjustments are made internally in order to fully comply with the upcoming regulatory changes and effective dates.
Maximising the benefits of technology
Regulated firms that employ agile technology solutions to assist in anti-money laundering prevention and detection stand the best chance at seamlessly adapting to regulatory change.
Companies should ensure that risk management programs have access to legally authoritative and accurate data, along with comprehensive record-keeping and reporting processes to demonstrate compliance within the organisation and to regulators. It has never been more critical for firms to maintain adequate systems to appropriately assess customer risk, especially during the onboarding stage and as part of ongoing due diligence.
Obtaining comprehensive and accurate company registry data and UBO checks, a major requirement of 5AMLD, has been challenging for many firms. Kyckr allows financial institutions and other regulated firms to quickly and easily verify company data across multiple registries and countries at once. Automated systems are huge time and resource savers and Kyckr’s Company Watch allows firms to continually monitor customer information and accurately assess a customer’s risk profile based on real-time, reliable data sourced from over 180 corporate registries across 120 countries.
Ultimately, as made clear in 6AMLD, it is the regulated firms’ utmost responsibility to take the steps necessary to know their customers in order to reasonably prevent and detect money laundering crimes throughout the customer relationship, from beginning to end.